- The Bank of England is one of several central banks in the world looking at the possibility of introducing digital central bank currencies (CBDCs).
- The country’s House of Lords believes Britcoin could pose significant risks such as financial instability, central bank overpowering, and privacy issues.
UK officials are debating whether the nation should adopt native central bank (CBDC) digital currency.
According to a peer committee, there would be a risk of banks running through the economic crisis of Britain’s digital currency. Bankruptcy is a situation where large numbers of depositors withdraw at the same time due to fear of bank insolvency, which influences other consumers to make withdrawals, resulting in insufficient funds in the bank. .
The Bank of England (BOE) is one of more than 90 central banks in the world looking at the possibility of introducing its own CBDCs.
More information: The IMF’s managing director says 110 countries are investigating CBDCs
However, the Lords Economic Affairs Committee considers that digital currency in the UK could pose «significant risks». The Commission highlighted a number of points in a published report.
The introduction of CBDC in the UK would have far-reaching consequences for households, businesses and the monetary system over the coming years and could pose significant risks depending on how it is designed,
These risks include state surveillance of citizens’ spending decisions, financial instability as people switch bank deposits to CBDC during times of economic stress, an increase in the power of central banks without adequate scrutiny and the creation of a central point of failure. aimed at its hostile nationalist or criminal activists.
The House of Lords and the BOE disagree over British CBDC
A number of witnesses appeared before this commission to discuss the FAW case. They included Bank of England Governor Andrew Bailey and his representative John Cunliffe, Treasury Economic Secretary John Glen and Senior Treasury Officer Charles Roxburgh. Of all this, the Commission said no witness was able to make a «convincing argument» as to why the UK needs retail digital currency.
However, peers recognized the importance of researching CBDC data. In addition, he urged the central bank to investigate it. In addition, according to the commission, a number of developments could strengthen the case for FAWs in the UK in the future. These include consumer payment options, technological advances, and options from other countries.
In general, the House of Lords is of the view that while the FAW may have certain advantages, there may be significant challenges to financial stability and the protection of privacy.
It should be noted that CBDCs, by design, negate any possibility of anonymity compared to cryptocurrencies.
Laith Khalaf, head of investment research at AJ Bell, London, says the Commission does not appear to be enthusiastic about the Britcoin idea. In addition, he believes it is “right” for colleagues to highlight the risks of CBDCs.
However, all this, he says, will not deter the central bank from looking at it, adding «unless the Bank of England creates a digital pound, the private sector could.»